
Cheap Hire Purchase
Spread the cost of buying your car
If you need a car and can't pay for it upfront, hire purchase is one of the options open to you. It's been used to buy cars almost since there have been cars, but that doesn't mean it's the right deal for you. Here we break down the basics of hire purchase so you can work out whether it's right for you.
Not the car finance option you were looking for? Check these out...
Personal car loans | Personal Contract Purchase (PCP) | Leasing

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What is hire purchase?
Hire purchase is a form of car finance that can be used to buy a new or used card. You essentially HIRE the car over the contract period, with the option to PURCHASE it at the end. You normally pay an upfront deposit, followed by monthly instalments until the amount you owe has been repaid. Crucially, until this last payment has been made, you don't own the car.
While you're paying off the finance, the finance company still owns the car. It's only once you've made ALL the payments (including the 'option to purchase' fee at the end, which is usually £100 or so) that ownership transfers to you.
The debt is also secured against the car. So if you can’t pay it, the finance company could repossess the car to help pay off your debt.
Around 10% of new cars, and 60% of used cars, are bought using HP – though it's not as popular as it once was.
Once you’ve found a car you want to buy, you’ll know the amount you want to borrow.
Dealers usually ask for a deposit of 10% or more of the car's price – and if you're buying a new car, many franchised dealers (those affiliated with manufacturers like Ford, BMW etc) run promotions giving you a contribution towards this if you take one of their finance deals.
You then pay fixed monthly payments over a period of one to five years, and typical APR interest rates for HP tend to be between 4% and 8% if you've a good credit score (they can go up to a massive 50% APR if you don't). Some dealers will offer 0% finance – but this is more likely if you’ve a chunky deposit to put down.
Remember, if you fail to keep up payments the finance company is entitled to seize the car.
What happens at the end of the finance deal?
Once all repayments have been made, you pay a final fee – referred to as the 'option to purchase' fee – to own the car outright. This covers the cost of transferring ownership to you, and is typically around £100. It should be mentioned in the HP agreement you sign at the start – but if you can't find it, make sure you ask the dealer how much the fee is.
Let’s take an example of how much you'd pay in total…
Say you're buying a car priced at £14,000:
- You pay a 10% deposit of £1,400, leaving £12,600 left to pay.
- You borrow £12,600 over three years.
- You get a 5% APR deal, meaning payments would be £378 a month (£13,608 for the three years).
- After three years you can take ownership of the vehicle, paying a transfer fee of £100.
- So in total you’d pay £15,108.
Remember! The car is owned by the finance company until the final payment and 'option to purchase' fee have been paid. Until then, you have no legal right to sell the car (though the finance company may let you if you ask, and use the proceeds to fully settle the finance agreement).
Paid off half the debt? You can return the car & walk away
Known as a voluntary termination, there's a little-known clause in the Consumer Credit Act which allows you to get out of an HP agreement early. Provided you’ve repaid at least half the total amount owed, you can terminate the agreement and return the car to the finance company.
This is a handy clause in an HP contract if you find:
- You no longer need the car.
- You want to cut costs.
- You can’t afford repayments.
- You can get a similar car for a lower cost than you would by making the remaining payments.
If you decide to do this, the car should be in good condition when you hand it back. If not, you’ll have to pay for any outstanding repair work that needs doing.
If you're not yet halfway through the payments, you’ll need to pay the amount outstanding to reach halfway before you can get out of the agreement.
Important! If you decide to end the agreement early, make sure to get everything in writing and keep a copy so nobody can claim you have defaulted on your payments.

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Is HP the right option for me?
There are so many different options when it comes to buying a car, it can be difficult to choose. We've highlighted the main benefits and pitfalls of choosing HP here:
Pros
You can spread the cost, meaning may be able to get a better car than if you had to pay it all upfront.
It's simple to arrange and understand.
It's flexible – with terms from 1-5yrs (the longer the term, the more interest you’ll pay).
You would own the car once you’ve made all payments.
You may get a deposit contribution from the manufacturer.
HP can be easier to get than a standard, unsecured loan for people with poor credit histories (as the car is used as security for the debt).
It's possible you might be able to get 0% finance, though this is often reserved for those with large deposits.
Cons
You don’t own the car until you make the final payment.
Rates are often higher than standard car loans.
You cannot sell or modify the car over the contract term without the finance company’s permission.
If you fail to keep up payments, the finance company may take the car away (it can do this without a court order until you’ve paid a third of the total amount).
Different car finance options compared
Broadly speaking, there are six different ways to pay for a car. The table has the key differences at a glance.
Finance type | Typical length of agreement? | Initial deposit required? | Who owns the car? | Mileage restrictions? |
None – cash savings | N/A | N/A | You | No |
0% credit card | Up to 20 months | No | You (though you'll still need to repay the debt) | No |
Personal loan | 1-7 years | No | You (though you'll still need to repay the debt) | No |
Personal Contract Purchase | 1-5 years | Yes (i) | The finance company, unless an optional final balloon payment is made | Yes |
Hire purchase | 1-5 years | Yes (i) | The finance company, until the final repayment is made | No |
Leasing/Personal Contract Hire | 1-4 years | Yes (i) | The finance company, at all times | Yes |
(i) In most circumstances, though sometimes you can get a deposit contribution from the dealer or structure a lease deal to pay nothing upfront.
So which wins?
Sadly, there is no one-size fits all answer to this (as much hangs on whether you want to own the car and other factors). However, we've included more information on each option below, to help work out which is right for you.
Where can I get an HP deal?
There are two main options here. The most common is to get the finance through the dealership you're buying from. However, it's worth getting quotes elsewhere first so you're able to compare the offer from any dealer, plus if you take a copy of the cheapest quote along you can ask it to match or beat it.
Whichever you opt for, remember the finance provider will own the car throughout until you have made your final payment.
Online finance brokers
HP deals can be found from a handful of online brokers. These are handy to get an idea of the prices and repayments you might be looking at on your ideal car. Brokers offer a wide range of deals, including those for buyers with a tarnished credit history. They simply supply the finance through a variety of lenders.
If you're asking for a quote from any of these brokers, check whether they'll do a hard or soft credit search when they give you a quote. If it's a hard search, be wary, as this is fully visible on your credit file to other lenders as an application, even if you then don't take out the loan.
Too many of these in a short space of time is a red flag and could wreck your chances of getting credit in the future, so think carefully.
Some of these brokers will also be able to source vehicles for you, as well as finance. But you can still get your car from any dealer in the UK, and just use the broker for the loan. Funds will be sent to the dealer after the finance agreement's signed. Here are a few of the larger brokers operating in the UK:
- High-street banks (for existing current account customers only). Although not an online broker, Halifax also offers a Fixed Car Plan HP deal*, which provides a similar service, yet it's only for its current account customers.
As with the other finance providers here, Halifax will send the cash straight to the dealer you're buying from. This means it will therefore own the car until the end of the deal. Halifax has a 3.4% representative APR on its car plans if the car costs £7,000 to £25,000. From £25,000 to £60,000, the rep APR is 4.4%.
Bank of Scotland* and Lloyds Bank* also offer similar HP deals to their current account customers. The rate of interest is 3.8% rep APR when you're borrowing less than £25,000 and 4.3% rep APR when you're borrowing more. The maximum amount you can borrow is £60,000.
- Admiral. Best known for car insurance, Admiral* also offers HP for nearly new and used cars, with a rep APR of 7.9%. It has its own eligibility calculator which will show you if you'll be accepted before applying.
- Carfinance247. One of the UK's biggest car finance brokers, Carfinance247* offers deals to suit almost any budget. You source a car from any UK dealer. Once you've done this, and know how much you need to borrow, you can get a quote from Carfinance247. It has different deals depending on your credit score, with rates starting from 6.9% APR and going up to 30% APR or more for people with a bad credit history (its rep APR is 19.9%).
- Zuto. Broker site Zuto* also has its own eligibility calculator, so you can see if you'll be accepted without marking your credit score. Its rates start at 10.9% though, with a representative APR of 20.3% (and some could get much higher) so always check if you can get cheaper credit elsewhere.
Dealer finance

Often known as forecourt finance, or just car finance, it's offered by almost every dealer in the UK – and HP is one of the options available.
Dealerships come in three main types: franchised (tied to one or more manufacturers, eg, BMW garages), independent (not tied) and car supermarkets.
Getting an HP deal through a franchised dealership
In a franchised dealership, finance deals are usually arranged through the car finance arm of a manufacturer – for example, Ford Credit, or Volvo Financial Services. It's definitely worth looking at what these dealerships can offer you on a finance deal, especially if you're buying a new car.
If this is the case, it's not uncommon for the manufacturer to give £500-£2,000 to you as a deposit contribution, and also offer 0% finance. If you don't qualify for 0% finance, you'll usually get an advertised APR offer of around 5%; though this is representative, so if you have a poorer credit history, you may be offered a much higher rate.
Getting an HP deal through an independent dealership or car supermarket
Many independent dealerships and car supermarkets get their finance from big banks' consumer arms. Blackhorse (part of Lloyds) and Santander Consumer Finance, for example, supply finance deals to non-franchised dealerships.
These finance providers aren't tied to manufacturers, and therefore can't offer the heavily subsidised 0% finance or deposit contributions that the car companies' finance arms can. If you go to one of these dealerships, expect a representative APR of somewhere between 5% and 10% – or more if you've a bad credit record.
It’s a competitive market out there – check what’s available online and from dealers, and ask yourself what you can really afford. It’s vital you can afford the repayments before you commit. With all these types of finance, if your application is accepted, finance is sent directly to the dealer.
How do I get the best deal?

The rate you’re offered will depend on your credit score, with the best rates available only to those with a squeaky clean history. Also, having a big deposit will help.
Ideally, and try to do this before you apply for HP finance, take the time to check your credit history at one of the main agencies. If it’s in need of improvement, consider ways to boost your score. See our Credit Scores guide for more.
Once you've checked your credit score, then find the cheapest deal you can. If you've got your heart set on HP finance, then find the cheapest HP deal. If you'd be happy with a personal car loan then this is almost certainly going to work out cheaper, though they are harder to get than car finance, as they're unsecured.
With car finance, much depends on where you're buying the car, how much you need to borrow and how good your credit record is. As such, there's no one-size-fits-all answer, other than to say: compare all the finance options, and pick the cheapest.

Hire purchase Q&A

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